BRIEFING BY THE DOE AND SFF ON

STRATEGIC FUEL STOCKS AND

STORAGE FACILITIESMFANO NKUTHA

SIVUYILE NGQONGWA

REQUEST FROM THE COMMITTEE

• COMPANY OVERVIEW INCLUDING HISTORY

• OVERVIEW OF ASSETS UNDER MANAGEMENT

• CURRENT STATUS OF THESE ASSETS

• OVERVIEW OF THE FUNCTIONING OF SFF

• HOW INCOME IS DERIVED

• FINANCIAL STATUS OF SFF

• FUTURE EXPANSION PLANS

PRESENTATION FORMAT

• INTRODUCTION TO SFF

• HISTORY

• MANDATE

• SFF OPERATIONS

• FINANCIAL STATUS

• PRODUCT STORAGE

• STRATEGIC STOCKS POLICY

• IDENTIFIED LOCATIONS

• FUTURE PLANS

HISTORY

• DEPARTMENT OF ECONOMIC AFFAIRS INITIATED THE CREATION OF A FUND FOR THE

STOCKPILING OF STRATEGIC CRUDE OIL

• SFF IS INCORPORATED IN 1964 WITH IDC AS A SHAREHOLDER

• IN TERMS OF GUIDELINES LAID DOWN, AMOUNTS WERE COLLECTED FROM OIL COMPANIES FOR

THE FUND.

• INTEREST FREE LOANS FROM EXTERNAL PROCUREMENT FUND WERE ALSO MADE TO SFF

• SUBSEQUENTLY A MONTHLY LEVY WAS ALSO PAID TO SFF FROM THE EXCISE DUTY ON PETROL

• 17 JUNE 1975, SFF MOA AMENDED BY SPECIAL RESOLUTION TO DEFINE ITS OBJECTS MORE

CLEARLY I.E. THE PROCUREMENT, STOCKPILING AND PRODUCTION OF FUELS OF STRATEGIC

IMPORTANCE TO RSA

• 15 APRIL 1976, SOF (PTY) LTD WITH SFF AS ITS SOLE MEMBER AND SHAREHOLDER IS

INCORPORATED – THE MAIN OBJECTIVE IS TO MANAGE THE STRATEGIC OIL FUND (NOW CENTRAL

ENERGY FUND). 4

MANAGEMENT HISTORY

• SFF IS MANAGED BY SASOL UNTIL 27 MARCH 1984

• IDC TAKES OVER SFF MANAGEMENT FROM SASOL

• PETROSA MANAGES SFF FROM 29 OCTOBER 2002

• CEF MANAGES SFF FROM 01 APRIL 2010

• IN 02 JUNAUARY 2013 SFF MANAGES IT’S OWN AFFAIRS

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MANDATE

S17(1) – THE MINISTER MAY, IN A PRESCRIBED MANNER, FOR THE PURPOSES

OF ENSURING SECURITY OF SUPPLY, DIRECT ANY STATE-OWNED ENTITY TO

ACQUIRE, MAINTAIN, MONITOR AND MANAGE NATIONAL STRATEGIC ENERGY

FEED-STOCKS AND CARRIERS.

CHAPTER 5 – SECURITY OF SUPPLY, NATIONAL ENERGY ACT 34 OF 2008

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SFF OPERATIONS

Saldanha Bay in-ground storage

Milnerton above ground storage

Oil Pollution Control division

Ogies underground bunkers

STORAGE FACILITIES

SALDANHA BAY, WESTERN CAPE

• 6 X 7.5 MILLION BARRELS UNDERGROUNG TANKS.

• 40 YEARS USEFUL LIFESPAN REMAINING.

• FACILITIES ARE ISO 9001, ISO 14001 AND ISO 18001 CERTIFIED.

• TWO TANKS DEDICATED TO STRATEGIC STOCKS AND BALANCE TO COMMERCIAL CLIENTS.

MILNERTON, WESTERN CAPE

• 39 X 200 000 BARRELS ABOVE GROUND TANKS.

• CURRENTLY UNDERGOING INTEGRITY TESTS TO DETERMINE USEFUL LIFE.

• FACILITIES ARE ISO 9001 AND 14001 CERTIFIED.

• NO STRATEGIC STOCKS AND ONLY THREE IN USE FOR COMMERCIAL PURPOSES.

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HOW SFF FUNDS ITSELF

ASSET BASE

• INTEREST ON CASH RESERVES, AND

• LEASING OF AVAILABLE STORAGE SPACE TO CRUDE OIL TRADING COMPANIES.

FUNDS UTILISATION

• GENERATED CASHFLOWS ARE USED TO MAINTAIN THE INFRASTRUCTURE AND FUND ALL

SFF’S OPERATIONAL EXPENDITURE.

• EXCESS FUNDS ARE TRANSFERRED INTO CASH RESERVES.

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FINANCIAL STATUS OF SFF

HISTORICAL REVENUES

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• On real terms (amounts not even adjusted for inflation factor) revenue generated by

SFF in the year 1995 (R2.6 billion) was more than 10 times higher than revenue

generated in 2015 (R198 Million), and the question is why?

• The answer to this question lies in the withdrawal of policy instruments that were at

the disposal of SFF at the time e.g. Importer of refined product for the country.

BUSINESS MODEL OR “ACCIDENTAL” BUSINESS

MODEL?

• On withdrawal of these policy instruments, SFF had to do an introspection of what it

is that it had accessed to.

• At its disposal were the crude oil storage tanks that belonged to the State.

• These crude oil storage tanks were not fully utilised and as such the spare capacity

could be leased out to oil traders.

• However this “business model” had its shortcomings as it was borne out of default

than design.

• It is subject to the whims of crude oil price fluctuations and biased to a market of the

crude oil price that is in down turn than upswing.

• It is a fact that the periods of crude oil price being depressed are few and far

between than market where the crude oil price is in upswing therefore the “default”

business model is found wanting more often than not and the cash balances

invested come to rescue.

• Also with SFF charged with the responsibility to manage and maintain the strategic

crude stocks and by extension the storage facilities and these functions require

funding to manage and maintain.

• SFF, even post withdrawal of policy instruments, had never requested financing from

the Fiscus as it had always ‘lived within its means’. 12

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COMMENTARY ON SFF REVENUES

• In the year 2008 with the world economy at its dizzying heights, the oil

price set a new world record hitting $147 per barrel on the 11 July 2008.

• Barely 2 months later the world was sank into recession as a result of

the so called “sub prime” crisis and the oil price came crashing down to

$32 per barrel.

• This depression in oil price was good news to SFF as it enabled the

company to enter into contracts with the oil traders that lifted the

company revenue from the lows of R42million to highs of R427million in

the financial year 2011.

• On expiry of these contracts with the oil traders and the oil price having

been in upswing trend since 2008 the oil traders were not keen on

renewing oil storage contracts.

• That resulted in our revenues tumbling down till the oil price nose dived in

June 2014 from the highs of $111 per barrel to about $48 per barrel in

January 2015.

• The positive impact of this decline in oil price started having a meaningful

impact in SFF revenues in January 2015 as the period between June to

September 2014 there was no market movement in storage business and

the period September to December 2014 was characterised by short term

contracts at lower storage rates.

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COMMENTARY ON SFF REVENUES

2014/15 to 2013/14

• The revenue generated in the last three (3) months of 2014 calendar

year is 2014 which is our third quarter of the financial year is 115%

(R54.5M/R47.2) of the revenue generated in the first half of the current

financial year.

• Revenue generated in the nine (9) months to December 2014 is 104%

(R101M/R97M) of the total revenue generated in the previous financial

year of 2013/14.

• Whilst revenue generated in the full financial year 2014/15 in

comparison to the financial year 2013/14 was more than 200%.

2015/16 Financial year

• The revenue generated in the first three (3) months of this financial

year is already only 3% below the revenue generated in the full

financial year 2013/14.

• Forecasted revenue of this financial year is R372million which will lift

the company revenue to the levels of the 2010/11 heights in our really

first year of this round of contango whilst the 2010/11 performance

was the final year of that contango episode.

FUTURE PLANS

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OPERATING COSTS

• In managing an operation that has a vulnerable business model to

market swings as SFF, requires a steadfast cost containment regime.

• Over the period that is depicted above SFF has been significantly below

budget.

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INCOME STATEMENTZAR’000

FINANCIAL YEAR2012-13

Audited

2013-14

Audited

2014-15

Audited

2015-16

Budget

2016-17

Forecast

2017-18

Forecast

Revenue 227,173 92,143 198,644 324 680 351 161 334 070

Interest Income 99 460 99 336 108,550 100 000 106 000 112 360

Taxation - - - - - -

Headline Earnings 153,864 19,236 81,082 116 827 105 982 112 341

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BALANCE SHEET

FINANCIAL YEAR 2014-15 2015-16 2016-17 2017-18 2018-19

Non-current Assets 3 204 224 3 733 870 4 191 783 4 137 492 4 107 492

Current Assets 2 060 397 1 723 220 1 346 776 1 478 495 1 612 495

Total Assets 5 264 621 5 457 090 5 538 559 5 615 987 5 719 987

Equity 4 811 867 4 860 708 4 933 657 5 002 379 5 106 379

Non-current

liabilities330 806 449 459 449 459 449 459 449 459

Current liabilities 121 948 146 923 155 444 164 149 164 149

Total Equity and

Liabilities5 264 621 5 457 090 5 538 560 5 615 987 5 719 987

ZAR’000

BEYOND CONTANGO

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Retu

rn

Risk0

STRATEGIC STOCKS POLICY

ISSUES

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STRATEGIC STOCKS POLICY

• GOVERNMENT POLICY

• DEPARTMENT OF ENERGY IS THE ACCOUNTABLE AUTHORITY

• SFF IS THE IMPLEMENTING AGENCY

• SFF-DOE TASK TEAM HAS PRODUCED THREE DOCUMENTS

• FUNDING PROPOSAL TO NATIONAL TREASURY I.E. LEVIES, DEBT AND

INCOME FROM STOCK ROTATION (2014)

• TAX TREATMENT OF STRATEGIC STOCKS TO NATIONAL TREASURY (2014)

• POTENTIAL STORAGE LOCATIONS FOR PETROLEUM PRODUCTS (2015)

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LOCATIONS UNDER CONSIDERATION

• ISLAND VIEW - DURBAN

• RICHARDSBAY PORT

• EAST LONDON

• CAPE TOWN PORT

• JAMESON-PARK PRECINCT

FINALISING STOCKS LEVELS REQUIREMENTS

CONCURRANCE FROM NATIONAL TREASURY FOR LEVIES TO BE IMPLEMENTED

FEASIBILITY STUDIES FOR THE SHORT-LISTED STORAGE SITES

MATTERS OUTSTANDING

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THANK YOU

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